Alternative Investments Gain Ground Among Institutional Investors

A new survey reveals real estate, private equity and hedge funds remain the preferred alternative types.

(June 21, 2010) — A new Russell Investments’ annual global survey on alternative investing shows that institutional investors worldwide view alternative investments as an effective way to diversity their portfolios, with plans to boost their exposure to these investments in the years ahead.

The survey of 119 organizations throughout North America, Europe, Japan and Australia, released today, shows that over the next two to three years, pension funds, endowments, foundations and insurance providers expect to increase their allocation to alternative investments by more than a third, to 19% of their total investment portfolios. While real estate, private equity and hedge funds remain the preferred alternative types, commodities and infrastructure are also expected to make meaningful gains, the study reported.

The study discovered that institutional investors have heightened their demands in such areas as liquidity and transparency. “Survey participants confirmed that alternative investing has survived the global financial crisis of 2008 and early 2009 and is poised for recovery, re-evaluation and increased allocations in the coming years,” said Janine Baldridge, head of global consulting and advisory services, in a statement. “Alternatives have gained a solid reputation as portfolio-diversifiers and risk-mitigators, and they are expected to gain momentum even if the current global recovery were to falter.”

Other survey highlights: Allocations to private equity dipped in 2009 due to the strong rebound in publicly traded equities but are expected to rebound in 2012. Survey respondents in North America expect the current share of private equity in their total portfolios, currently averaging 4.3%, to increase to 6.8% in 2012. In addition, respondents expect to increase the proportion of their portfolios committed to hedge funds to 5.7% in 2012, up from 4.2% in 2009.

The study also found that institutional investors have increased their risk management efforts, with 84% of respondents making changes in their risk management approach, and nearly two-thirds increasing the sophistication of their internal decision making and governance processes. “This is one of the key takeaways in the survey — investors are looking to improve how they invest and what they demand from those who will be supporting them,” Baldridge said to ai5000.

In regard to alternatives, 44% said they are increasing the depth and frequency of reporting, and 39% indicated they are providing more active education and briefings to boards or senior management.

Read the survey here.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742